“Economic system founded by Adam Smith based on private property, profit, free market and competition”.

Comment

Advice: hold onto your money. Don’t believe anything Peter tells you. Run for cover. He is so wrong about Adam Smith (he did not “found capitalism”. Smith died in 1790. The word ‘capitalism, was first used in English in 1854 by Thackery, an author of fiction. And ‘traces” of capitalist relationships go back to Roman times.

Sunday, March 06, 2016

LOCAL PAPERS PICK UP A DEBATE ABOUT ADAM SMITH

Tom Hall when replying to a Mr Doug Wardwell’s letter of 3 March in “Providence Journal” opines:

“Worst, he [Doug Wardwell) seems unaware that the hero and framer of the laissez-faire system he champions recognized the need for governmental oversight lest the greed and collusion of powerful special interests impair the general welfare. Adam Smith observed in "The Wealth of Nations" that "Protecting every member of society from injustice and oppression necessarily involves such issues as the abolition of slavery, rights of women, regulation of monopoly, and redistribution of income and/or wealth.”

Comment

Robert Sandy comments on the above:

“The quote in the letter from Adam Smith's Wealth of Nations, "Protecting every member of society from injustice and oppression necessarily involves such issues as the abolition of slavery, rights of women, regulation of monopoly, and redistribution of income and/or wealth" doesn't appear in that book. One could argue whether any of those sentiments might have been expressed by Smith but the quotation is obviously bogus based on the language. For example, "and/or" is not an 18th century usage….”

I too didn’t recognise the quotation attributed to Adam Smith by Tom Hall. One clear clue was the reference to laissez-faire - words that Smith never used in all of his Work and correspondece. Those words were a 19th-century invention by political writers who assumed that Smith would have used them. Instead, Smith wrote of the quite different ideas implicit in “Natural Liberty”, a conept whose properties were multi-sided to incorporate all human kind.

Laissez-Faire, a French word, from its first use at the end of the 1680s, refered to the one-sided rights for property owners versus government inspectors, in this case to market place merchants, but not to their customers.

In the 19th century merchants and factory owners sought to defend their powers to set labourers wages and their weekly hours of work in the new factory system and also to repeal the Corn Laws so as to reduce their labour costs. Smith’s names was used to imply that he supported these measures.

As for “rights of women” methinks that Tom Hall has jumped from the 18th century forward to the 20th century! So thank goodness that Robert Sandy was able to put him right.

In this particular instance, Dudley’s speech feels like a vapid invocation of Adam Smith, by trying to apply the “invisible hand” (IH) to monetary policy:

"Let me close with a final thought. Adam Smith in the Wealth of Nations introduced the concept of the “invisible hand.” Smith argued that individuals acting in their self-interest can collectively promote the public interest. This concept, I believe, also often applies to international monetary policy.2 The biggest problems that countries create for others often stem from getting policy wrong domestically. Recession or instability at home is often quickly exported abroad. Equally important, growth and stability abroad makes it easier to set policy at home. Central banks, therefore, by individually acting on their domestic economy mandates, can collectively promote the global economy"

Ignoring for now that the invisible hand wasn’t connected with Adam Smith until decades after his death, contrast Dudley’s invocation of Smith’s Wealth of Nations (WN) with Kennedy’s:

Turning to the IH in Wealth of Nations we find a too general interpretation of Smith’s use of the IH metaphor … the “phrase” (?) describes “the unintended social benefits resulting from individual actions.” This is far too general an interpretation, though very common in modern textbooks and lectures.

In WN, Smith is discussing a singular case of a merchant who is concerned about the risks to his capital if it is sent abroad, out of his sight and control, and into the hands of a foreign legal system of which he is unsure of its probity. In response, this merchant invests his capital locally where he is surer of the integrity of the legal system, where he knows the other merchants with whom he deals and is confident of the independence of outcome if he has cause to seek legal redress.

However, by acting to protect his interests he intends only his security but in doing so he unintentionally also adds his capital to “domestic revenue and employment”, which is a “public benefit”, albeit outwith his singular intentions.

There is nothing about the IH describing the “unintended social benefits resulting from individual actions” as a general rule. This is an extraordinary and unwarranted assertion by … those who generally assert Smith’s singular example into a general rule…

Comment Naturally I am delighted to see Lost Legacy quoted and I urge readers to follow the link and read the full discussion.
o